AMI: Have mortgage affordability assessments gone too far?

The Association Mortgage Intermediaries has questioned whether mortgage affordability assessments have gone too far – resulting in consumers taking out unsecured credit rather than cash against their properties.

AMI was responding to the Bank of England’s inflation report for November, which said that around half of households with a mortgage find it cheaper to obtain a personal loan than increase their mortgage borrowing by remortgaging, taking out a second charge or a further advantage.

In its quarterly economic bulletin AMI responded: “This is a worrying statistic.

“Consumer credit lending has risen rapidly in recent years, much to the concern of the Bank of England which has repeatedly warned lenders to show restraint in affordability assessments and the granting of interest free introductory offers spanning several years.

“It’s continued growth and households’ clear reliance on unsecured credit raise perhaps uncomfortable questions over whether tightening in the mortgage market, where there is underlying security with potential for capital growth and where interest rates are consequently far lower, has gone too far and is encouraging households to take on debt in other format.”

AMI went on to say the picture is further muddied by the growing number of households taking on student debt.

This is said to pose a risk to the wider stability of the economy should repayments default, especially given the government’s decision to securitise student loans for resale.